Taxation (Post-transition Period) Bill is scheduled to complete its stages in the House of Commons on 15 December 2020 and to be considered in the House of Lords the following day. A motion to suspend standing order 46 is due to be considered in the House of Lords on 15 December 2020. If agreed to, this would allow all stages of the bill to take place in the Lords on 16 December 2020. The bill would implement various aspects of the Northern Ireland Protocol relating to customs duties, VAT and excise. It would also make some other general changes to existing tax legislation to prepare for the post-transition period, including introducing a new system for collecting VAT on goods arriving into the UK. As the bill is a supply bill, the House of Lords is debarred from amending it.

What would the bill do?

Northern Ireland Protocol: Customs duties

The terms of the withdrawal agreement and its Ireland/Northern Ireland Protocol create a unique status for Northern Ireland. It remains part of the UK’s customs territory but will continue to apply the EU’s customs code, VAT rules and single market rules for goods after the transition period ends on 31 December 2020. Article 5 of the protocol addresses customs and the movement of goods. Article 5(1) states that goods entering Northern Ireland from another part of the UK would be subject to customs duties (tariffs) only if they are at risk of subsequently being moved into the EU. Goods moved into Northern Ireland from outside the EU or the UK would be subject to UK tariffs, unless they were at risk of subsequently being moved into the EU. Article 5(2) says that goods brought into Northern Ireland from outside the EU would be considered ‘at risk’ of moving into the EU unless they met criteria for not being ‘at risk’. The protocol specifies the UK and EU should agree these criteria jointly before the end of the transition period.

The Joint Committee announced on 8 December 2020 that it had reached agreement in principle on determining the criteria. This committee is a joint EU-UK body established to oversee implementation of the withdrawal agreement and the protocol. A detailed draft decision was published on 10 December 2020. The Government said this agreement means that goods which can be shown to remain in Northern Ireland and the UK’s customs territory will not be subject to tariffs. Tariffs will be charged on goods destined for the EU, or where there is “uncertainty or genuine risk of onward movement”. The Government has said the Joint Committee will formally adopt the decision before the end of the year.

Clauses 1 and 2 of the bill would implement customs provisions of the Northern Ireland Protocol by amending the Taxation (Cross-border Trade) Act 2018 so that:

• EU goods imported into Northern Ireland from the EU are not subject to customs duties or processes.
• Customs duty is charged where:
  • goods are moved from Northern Ireland to Great Britain and these are deemed ‘at risk’ of subsequently being moved into the EU or are non-domestic goods.
  • non-EU goods are imported into Northern Ireland.
  • goods which are not ‘qualifying Northern Ireland goods are moved to Great Britain from Northern Ireland.
  • ‘qualifying Northern Ireland goods’ that would otherwise be eligible for unfettered access to the UK internal market are moved from Northern Ireland to Great Britain for the purpose of avoiding customs duties.

The bill itself does not define ‘at risk’ goods. Instead, it gives the Treasury power to make regulations to define this. These regulations would be laid before the House of Commons only, and would be subject to the negative procedure. This means that the Commons would have the power to annul the regulations, but the Lords would not. The Government intends to make these regulations before 1 January 2021. Clauses 1 and 2 give the Treasury powers to make regulations generally about the duties introduced by these clauses. The Government has set out further details in a delegated powers memorandum about how and when it intends to use these powers.

The Government is legislating in the United Kingdom Internal Market (UKIM) Bill to ensure that ‘qualifying Northern Ireland goods’ have “unfettered access” to the UK internal market. The definition of ‘qualifying Northern Ireland goods’ is set out in a separate statutory instrument (SI). The Lords Library briefing on this SI explains more about this, including the fact that the Government may refine the definition in future after consultation with Northern Ireland businesses. (Note: the briefing refers to clause 43 being removed from the UKIM Bill. At the time of writing, parliamentary ping-pong on this bill is still ongoing, but the two Houses have agreed to reinstate clause 43.)

Northern Ireland Protocol: VAT and excise duty

Article 8 of the protocol deals with VAT and excise. EU VAT and excise provisions relating to goods will continue to apply in Northern Ireland. However, HMRC will continue to be responsible for the operation and collection of the revenues, which will not be passed on to the EU. VAT exemptions and reduced rates that apply in Ireland can also apply to Northern Ireland.

Clause 3 of the bill amends the Value Added Tax Act 1994 to implement obligations from the protocol. HMRC and the Treasury have explained these provisions will ensure that:

[…] movements of goods between Great Britain (and the Isle of Man) and Northern Ireland will be treated as imports/exports. However, accounting mechanisms will ensure that, in so far as is possible, VAT will be accounted for by businesses and individuals as it is today.

Clause 4 amends current legislation for excise duty to be charged when certain goods, for example alcohol and tobacco, are moved from Great Britain to Northern Ireland. The Government has said this is necessary to ensure a fully functioning VAT and excise regime in place in relation to Northern Ireland at the end of the transition period. Clause 5 would give the Treasury regulation-making powers in connection with excise duty under clause 4.

Northern Ireland Protocol: Fuel duty on aviation gasoline

Clause 6 would raise fuel duty on aviation gasoline, or ‘avgas’, from £0.3770 to £0.3820 per litre. The rate rise is required in Northern Ireland because of an EU measure on energy taxation that continues to apply there through article 8 of the protocol. The Government has decided to raise the rate for the whole of the UK to ensure consistency. Avgas is a form of leaded petrol predominantly used in leisure flying.

Online sales by overseas persons and low value importations

Clause 7 introduces a new model for collecting VAT on goods arriving into the UK. The explanatory notes to the bill explain that the changes will include:

• The abolition of a relief from import VAT for consignments not exceeding £15 for goods arriving in Great Britain. LCVR [low consignment value relief] will continue to apply in Northern Ireland. However, it will not apply to goods that are ordered remotely.
• Moving VAT collection away from the border for consignments not exceeding £135.
• Placing the responsibility to pay VAT onto either an overseas seller or an online marketplace, where they facilitate a sale or the UK recipient if they are VAT-registered.
• The introduction of online marketplace liability for goods already in Great Britain at the point of sale that are sold by an overseas business to a UK consumer, regardless of value.

Insurance premium tax

Clause 8 deals with HMRC’s ability to issue liability notices where insurers fail to pay insurance premium tax. It would ensure that HMRC can continue to issue a liability notice if the insurer is in an EU member state but the UK does not have a mutual assistance agreement with that state.

Recovery of unlawful state aid

The bill’s explanatory notes explain that in April 2019, the European Commission decided that the UK had unlawfully provided state aid between 2013 and 2018 to certain UK companies in multi-national groups in the form of an exemption from the Controlled Foreign Companies (CFC) tax charge. The UK must recover such unlawful aid together with compound interest. This obligation will remain after the end of the transition period as the Commission’s decision relates to a period when the UK was still an EU member. The UK is challenging the Commission decision before the General Court of the Court of Justice of the European Union. Clause 9 would introduce specific powers to enable HMRC to raise CFC tax charges in relation to the requirement to recover state aid.

What is not in the bill?

It had been expected that this bill might include provisions similar to controversial clauses in the UKIM Bill. The UKIM Bill originally sought to give ministers the power to unilaterally interpret, modify the application of or disapply parts of the Northern Ireland Protocol, notwithstanding their obligations under international and domestic law to implement the protocol. The House of Lords opposed the inclusion of these ‘notwithstanding’ clauses in the bill. The Government argued it needed these powers in case the EU “engaged in a material breach of its duties of good faith or other obligations”. The Government maintained that one example of such behaviour would be “insistence that GB-NI tariffs and related provision such as import VAT should be charged in ways that are not related to the real risk of goods entering the EU single market”.

The Government said it would follow the UKIM Bill with a finance bill that would “make it clear that no tariffs will be payable on goods moving from Great Britain to Northern Ireland unless those goods are destined for the EU market, or there is a genuine and substantial risk of them ending up there”. There was speculation the new bill would also contain ‘notwithstanding’ clauses seeking to allow the UK to make a unilateral definition of ‘at risk’ goods.

However, this turned out not to be the case. On 8 December 2020, Michael Gove and Maroš Šefčovič, the co-chairs of the Joint Committee, issued a statement confirming they had reached agreement in principle on outstanding issues to do with the implementation of the Northern Ireland Protocol. This included the criteria for defining which goods would not be ‘at risk’ of entering the EU. Among other things, it also included agreement on two issues that had been particularly controversial in relation to the ‘notwithstanding’ clauses of the UKIM Bill—export declarations for goods moving from Northern Ireland to Great Britain and the application of state aid under the protocol. The statement said that in view of the mutually agreed solutions, the UK would withdraw clauses 44, 45 and 47 (the ‘notwithstanding’ clauses) of the UKIM Bill and would not introduce any similar provisions in the Taxation (Post-transition Period) Bill. Michael Gove told the House of Commons on 9 December 2020: “Having put beyond doubt the primacy of the sovereignty of this place as we leave the EU, we rest safe in the knowledge that such provisions are no longer required”.

Bill stages in the House of Commons

The House of Commons debated ways and means resolutions relating to the bill on 8 December 2020. A bill must be founded on a ways and means resolution if its main object is “to impose a charge upon the people”. The Government published short notes on the resolutions. The bill was introduced and published after the Commons agreed the ways and means resolutions.

Second reading and committee stage took place the following day, 9 December 2020. Jesse Norman, Financial Secretary to the Treasury, said the bill would help deliver the Government’s commitments to deliver “unfettered access” for Northern Ireland businesses to the rest of the UK internal market and to protect progress made under the Belfast (Good Friday) Agreement. He said the bill would provide legal certainty for the customs, VAT and excise systems in Northern Ireland after the end of the transition period. Anneliese Dodds, the Shadow Chancellor, criticised what she described as the Government’s “last-minute approach” to the legislation, giving the House of Commons “less than 24 hours to scrutinise a major piece of post-Brexit legislation”. She argued that since much of the detail was still to be set out in secondary legislation, “even with the publication of the bill, businesses and individuals still do not have the information they need to prepare for the end of the transition period”. She said that Labour supported the bill passing but could not support “such continued lack of clarity on critical issues”.

The Commons did not amend the bill at committee stage. Labour and the Scottish National Party (SNP) voiced concerns about the use of delegated powers in the bill. Pat McFadden, Shadow Economic Secretary to the Treasury, called on the Government to set out more detail on how duties and tariffs might be rebated through regulations under the bill. He also called for the Government to set out a timetable on when it intended to use the regulation-making powers. Alison Thewliss, the SNP Treasury spokesperson, moved an amendment intended to make regulations under the bill subject to the affirmative procedure. This was defeated by 350 votes to 257.

The bill’s remaining stages in the House of Commons are due to take place on 15 December 2020, the day before the bill is due to be considered in the Lords. Amendments tabled for the bill’s report stage in the Commons are published on the documents section of the bill page on the parliamentary website.

Supply bill: What does this mean for the House of Lords?

Under modern practice, all bills brought in upon ways and means resolutions are bills of aid and supplies. These are usually referred to as supply bills in the House of Lords. Supply bills may be passed or rejected by the Lords but, since the supply is granted by the House of Commons, the Lords are debarred from offering any amendment. The committee stage of supply bills is ‘negatived’. This means that immediately after the second reading, the member in charge of the bill moves “that this bill be not committed” and the question is put. If it is agreed to, the next stage is third reading.

An earlier example of a Brexit bill brought in under a ways and means resolution was the Taxation (Cross-border Trade) Act 2018. This provided for the UK to establish an independent post-Brexit customs duty regime. At the bill’s second reading in the Lords, the Liberal Democrats moved an amendment expressing “profound concern” that, among other things, the Government had “sought to limit the role of Parliament, and in particular the role of this House, in the revision and scrutinising of this bill”. The amendment was defeated by a majority of 80.

A supply bill may or may not be certified as a ‘money bill’. The Speaker of the House of Commons certifies a bill as a money bill if in their opinion it contains only provisions dealing with national (but not local) taxation, public money or loans or their management. A money bill can become an Act of Parliament without the consent of the Lords as long as it is sent to the Lords at least one month before the end of the session. The Speaker does not decide whether to certify a bill until it has reached the form in which it will leave the House of Commons. However, the House of Lords Government Whips have listed the bill as a money bill on their website.

Read more

• House of Commons Library, ‘Taxation (Post-Transition Period) Bill 2019–20’, 10 December 2020 (short briefing providing chronology of the bill and links to relevant briefing papers, committee reports, official guidance and other publications)
• House of Commons Library, Background to the Taxation (Post-Transition Period) Bill 2019–20, 8 December 2020 (longer briefing providing more context on the Northern Ireland Protocol)
• HM Treasury, ‘Taxation (Post-transition Period) Bill’, 8 December 2020 (includes links to HMRC/Treasury tax information and impact notes on specific measures in the bill)

Cover image by 8photo at freepik.